Guest Post by Malcolm Peart (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
The Pareto Principle, or more commonly the “80/20 rule”, is based upon the observation that 80% of the consequences of something are attributable to 20% of the causes. The quality guru Joseph Moses Juran named the Principle in 1941 after the Italian economist who, in 1896, observed that 80% of the land in Italy was owned by 20% of the population. The centenarian also similarly observed that 80% of quality problems result from 20% of the causes. In the business world we also see that 80% of a company’s revenue is generated by only 20% of its customers. As with life, things are not distributed either evenly or even fairly.
The Principle is sometimes described as ‘the law of the vital few’. Take computing for example, 20% of bugs can account for 80% of crashes but that doesn’t mean that the other bugs don’t need to be fixed. A few things may be vital but the remainder cannot be classified as ‘trivia’. Ultimately everything is important and the totality of a product or project cannot be ignored.
The 80/20 rule is not confined to quality and business but applies to many other types of observations including social, scientific, and actuarial phenomenon. It also addresses time and effort and most, if not all us, have observed that 80% of our effort seems to be spent on 20% of a project and there’s never enough time to deal with the rest. This aspect of the Pareto Effect shows that our management can be better but all too often it demonstrates its dark side.
Much Ado About Nothing
Over 400 years ago Shakespeare wrote an acclaimed comedy that captured the hilarity that misunderstandings, passion and deception can provide to an onlooker. Outside of the theatre ‘much ado about nothing’ is far from hilarious and yet project teams and organisations alike can easily focus on trivia inflated through rumours, opinions and hearsay.
In 1957 the historian C. Northcote Parkinson formulated his Law of Triviality and that “The time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.” How often do we find that 80% of a meeting is spent on 20% of the agenda? Is this the natural course of the Law or is it conspiratorial? Are the participants merely being exhausted with trivia so that the more vital elements are then railroaded into the final minutes and decided upon.
This disproportionate waste of time can be commonplace, particularly when an inordinate amount of analysis is demanded by any would be, but reluctant, decision maker. In Hong Kong this obsession is analogized into the saying, “looking for chicken bones in the yolk of an egg”. Hours are spent, and wasted, regurgitating, revisiting and debating the same facts over and over again with an 80% hope that history can be changed and a similar hope that a 20% excursion into geography can be avoided.
Procrastination & Time Management
Time, albeit free, is a priceless commodity. We can’t own it but we can use it, and while time is frequently wasted we cannot store it. For those managers who need time to decide but either can’t, or won’t, they can buy time through the well-known tactic of “When in doubt delegate”.
But why should this happen, particularly if there is no time left? The Pareto distribution demonstrates that issues may be addressed through an organisation’s structure and delegation should be a normal part of work rather than being reserved for crises. Issues and problems occur all the time but, as with risk, they should be dealt with by those best suited and best situated.
If every issue is escalated then then the management team becomes inundated and ineffective. Every issue needs some analysis and as more and more people are involved the chances of the vital 20% being addressed is severely reduced. Hence, it’s imperative that decisions are made at the right level in any structure. Ubiquitous escalation merely leads to procrastination and the governance of a project team is sorely challenged.
If decision making authority is undecided, or miscommunicated then everything is escalated. In the absence of authority and predetermined delegation the proverbial buck can be passed up any chain of command to the top man or woman like a hot potato. At this extreme the Pareto effect is inapplicable and 100% of issues are dealt with by senior management; any dependency on the organisation to make decisions has been lost and micromanagement results.
Escalation & Delegation
Organisations typically have a hierarchical structure reflecting the level of authority and the Pareto principle also applies. In the construction industry the ratio of blue to white collar workers is in line with the 80/20 rule. The US military has a similar spit between enlisted personnel and officers at 82/18 and, in such a disciplined force delegation of responsibility is far from unclear.
Each level of authority in any organisation, theoretically, takes its delegated share of responsibility and accountability but the distribution is far from uniform. Decisions are easily made if it’s within somebody’s pay grade and if people know their job; according to Pareto 80% of the job should dealt with comfortably with only 20% escalated. At least that’s how it should work in theory and assuming that people are both willing and able and not uncertain.
If, Paretoically speaking, organisations take 80% of decisions at each level and only escalate 20% then any chain of command would free of trivia and each level of management would allowed to deal with their percentage of the ‘vital few’. If the Pareto effect works inversely then 80% of all matters are escalated, micromanagement results, and while capable people become demoralised the micromanager ponders the question, “To escalate or not to escalate…or to delegate or delve in”.
Managers who forget they are ‘managers’ and, upon deciding not to escalate or delegate, decide to roll up their sleeves, wade into the quagmire and, without being asked, interfere may well be guilty of breaking the law of the vital few. These wouldbe heroes step in when an issue is of either interest or they want to be seen to be doing something. This can be interpreted as the actions of a busybody or glory-hunter who revels for the limelight at the expense of others or addressing ‘less vital’ (aka ‘boring’) tasks including running off the ball.
By getting their hands dirty they effectively oust out those whose job it is. The ousted subordinates may observe that their manager won’t let others get in the way of their pet hobby, but peers and superiors think the very opposite. When the captain of the ship is spending 80% of his time tinkering in the engine room…who is commanding the ship?
It’s during the latter situations that the Pareto effect on leadership is required. The manager needs to apply 80% of leadership effort to communicate with his team, formulate a workaround plan, delegate effectively and work the chain of command both up, and down. Far from being bored with trivia there must be a conscious effort to deal with it; after all, and at the end of the day, it’s all important.
The force of Pareto Distribution is with you…always. When managing our projects we should be aware of this force of nature that, when coupled with human behaviour result in inevitable problems. When we ignore the message that the Pareto effect tells us, we miss the opportunity to have problems addressed by the right people, at the right time and in the right place. If we don’t then the darker side of the Pareto Principle comes to light.
Rather than focusing on the vital elements that make up 20% of tasks in hand at any one time we find that we waste 80% of our time and effort on trivia. Trivia, along with gossip and rumours, can spark interest and, typically, interest can be inversely proportional to importance. By focusing our 80% on the ‘interesting’ and ignoring the ‘boring’ 20% we will experience the downside of Pareto Management. It’s easy to be seduced into complacency and go with flow and focus on high profile and topical problems than summon up the courage to deal with those underlying, unwanted or even unwelcome issues
This unfortunate ratio is exacerbated by another Paretoism that many people can only give 80% of their focus for 20% of the time. This probably explains why the collective attention span of a meeting of managers is likened to that of a gnat. This joking observation should prompt us to focus on issues and deal with the vital and perhaps difficult elements first rather than seeking out the potentially more interesting, more eye-catching and more high-profile trivia.
Pareto Management can help us identify where our problems really are and focus our time and effort on who is best suited to deal with them, where and when. If we don’t take heed we may then realise that ‘much ado about nothing’ is the Dark Side of a very expensive comedy of disproportionate errors.
Malcolm Peart is an UK Chartered Engineer & Chartered Geologist with over thirty-five years’ international experience in multicultural environments on large multidisciplinary infrastructure projects including rail, metro, hydro, airports, tunnels, roads and bridges. Skills include project management, contract administration & procurement, and design & construction management skills as Client, Consultant, and Contractor.